Professionally managed collective investment funds
Unit trusts and open-ended investment companies (OEICs) are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets and other investments. An open-ended fund could be visualised as a big pool of money – the money belongs to thousands of small investors.
Invest as much of your annual ISA allowance as you like in either a Stocks & Shares ISA or a Cash ISA, or any mixture of the two
Some people never look beyond Cash Individual Savings Accounts (ISAs), but by using Stocks & Shares ISAs too, you could get a higher return on your investment. Stocks & Shares ISAs can contain shares, bonds and investment funds. There are no restrictions about where in the world you can invest: it does not have to be all in the UK.
Choosing a broad spread of instruments in which to invest
If you require your money to provide the potential for capital growth or income, or a combination of both, and provided you are willing to accept an element of risk, pooled investments allow you to invest in a large, professionally managed portfolio of assets with many other investors. As a result of this, the risk is reduced due to the wider spread of investments in the portfolio.
Every investor is unique, but everyone faces the same trade-off between risk and reward
The best place to start when you are looking to build a diverse investment portfolio is to ask yourself why you’re building a portfolio. For most of us, the central task is to build a pot of money that involves you, the investor, taking some risk over the long term, at the end of which you will have ideally built up a sizeable portfolio of diversified assets that will last you through to your retirement years.
Minimising exposure to volatility and market setbacks
Investing would be easy if markets rose in a straight line. Unfortunately, that is rarely the case. Over the long term, assets such as shares and bonds have tended to produce positive returns, but there have been several bumps along the way. In any event, past performance of investments cannot be taken as a guide to their future performance.
Managing the risks you are exposed to in order to avoid suffering losses to your capital
Whether you’re planning to start investing your money, or even if you’re already a seasoned investor, it’s crucial to make sure you manage the risks you are exposed to in order to avoid suffering losses to your capital. The key is to build a diverse portfolio with a mix of different investments that makes sense for your attitude to risk.
The fundamental environment in emerging markets remains stable. As the market has grown accustomed to living with several pending risk events, liquidity and risk appetite have been creeping back up. Buyers of emerging market mutual funds have been returning to the asset class after the commencement of the ECB’s version of QE.
Interest rates recently marked a sixth year at a record low of 0.5%. Therefore, it is noteworthy that research from the Association of Investment Companies (AIC) shows that a fifth (21%) of AIC member investment companies which have been in existence for more than 10 years have raised their dividends for at least 10 years in a row.
Record-low interest rates are rarely out of the news these days. With UK investors struggling to achieve a decent income from traditional investment sources, it might raise a few eyebrows to learn that less than half can correctly explain the term ‘income investing’.
The hunt for income has shown no sign of slowing. Alternative assets in areas such as infrastructure, debt and property can offer a high level of income, and, being illiquid assets, they are particularly suited to being held in a closed-ended fund. Indeed, of the 49 investment companies yielding over 5%, 32 (65%) are from specialist sectors[1]. What gives these specialist sectors an advantage when it comes to yield? Why would investors consider these specialist sectors as part of their income portfolio?